Impact of Exchange Rate Volatility on Growth and Economic Performance: A Case Study of Pakistan, 1973-2003

Abstract

“Exchange rate” is the price of one currency in relation to another. In a slightly different perspective, it expresses the national currency’s quotation in respect to foreign ones. Thus, exchange rate is a conversion factor, a multiplier or a ratio, depending on the direction of conversion. It is believed that if exchange rates can freely move, it may turn out to be the fastest moving price in the economy, bringing together all the foreign goods with it. In the existing literature, (most of the time) volatility comes with the exchange rate. Volatility is defined as “instability, fickleness or uncertainty” and is a measure of risk, whether in asset pricing, portfolio optimisation, option pricing, or risk management, and presents a careful example of risk measurement, which could be the input to a variety of economic decisions.